CARPE DIEM

Professor Mark J. Perry's Blog for Economics and Finance

Saturday, March 31, 2012

Drug Lord Thanks Obama, Both Bushes, and Reagan For War On Drugs: "I Owe My Whole Empire to You"

Top billionaire Mexican drug lord (ranks #701 on Forbes list of the world's richest people) "bitch slaps five American presidents" by saying "I couldn't have gotten so stinking rich without George Bush, George Bush, Jr., Ronald Regan and even El Presidente Obama, none of them have the cojones to stand up to all of the big money that wants to keep this stuff illegal. From the bottom of my heart, I want to say "Gracias Amigos" I owe my whole empire to you."

HT: Mi amigo Jaime Hoyos Fonseca in Bogota, Colombia

Update: The Huffington Post originally reported this story back in 2009, but the Daily Caller is now reporting that the original article was a satire to draw attention to the War on Drugs War on Peaceful People Who Voluntarily Choose To Use Intoxicants Not
Currently Approved of By Various Governments, Who Will Put Users in
Cages if Caught. Even if Mexican drug lord Joaquin “El Chapo” Guzman Loera — kingpin of the
Sinaloa Cartel, the world’s most powerful drug trafficking organization — didn't make the statement thanking U.S. presidents for his wealth, it's still true that his billionaire status was made possible only because of U.S. drug policy.

Markets in Everything: Online Toy Rental

Human Achievement Hour 2012

From the Competitive Enterprise Institute (CEI)-- "On March 31, some people will be sitting in the dark to express their
"vote" for action on global climate change (see CD post on Earth Hour). Instead, you can join CEI
and the thousands of people around the world who will be celebrating
Human Achievement Hour (HAH). Leave your lights on to express your
appreciation for the inventions and innovations that make today the best
time to be alive and the recognition that future solutions require
individual freedom not government coercion."

NYC Pizza War Drops Price of a Slice to 75 Cents

As a consumer, you gotta love the intense "cut-throat" competition on the Avenue of the Americas in midtown Manhattan that has brought the price for a slice of pizza down from $1.50 to now only 75-cents, and it might even go lower. One of the owners says "We may go to 50 cents," and a rival says "We might go to free pizza soon." Midtown Manhattan is experiencing significant food price deflation.... at least for pizza.....

Earth Hour is Today: N. Korea is the Likely Winner

"Earth Hour" will take place today (March 31) at 8:30 p.m. According to the WWF (watch video above), the mission of Earth Hour is to "Dare the World to Save the Planet":

"We only have one planet. You can help protect it. Participate in the
world’s largest single campaign for the planet: Earth Hour. It starts by
turning off your lights for an hour at 8:30 pm on March 31, 2012 in a
collective display of commitment to a better future for the planet.
Think what can be achieved when we all come together for a common cause."

Here's a dissenting opinion on Earth Hour from Ross McKitrick, Professor of Economics at the University of Guelph, who abhors Earth Hour.

"Abundant, cheap electricity has been the greatest source
of human liberation in the 20th century. Every material social advance in the
20th century depended on the proliferation of inexpensive and reliable
electricity.

Giving women the freedom to work outside the home depended on the
availability of electrical appliances that free up time from domestic chores.
Getting children out of menial labor and into schools depended on the same
thing, as well as the ability to provide safe indoor lighting for reading.

Development and provision of modern health care
without electricity is absolutely impossible. The expansion of our food supply,
and the promotion of hygiene and nutrition, depended on being able to irrigate
fields, cook and refrigerate foods, and have a steady indoor supply of hot
water.

Many of the world’s poor suffer brutal environmental conditions in their own
homes because of the necessity of cooking over indoor fires that burn twigs and
dung. This causes local deforestation and the proliferation of smoke- and
parasite-related lung diseases.

Anyone who wants to see local conditions improve in the third world should
realize the importance of access to cheap electricity from fossil-fuel based
power generating stations. After all, that’s how the west developed.

The whole mentality around Earth Hour demonizes electricity. I cannot do
that, instead I celebrate it and all that it has provided for humanity.

Earth Hour celebrates ignorance, poverty and backwardness. By repudiating
the greatest engine of liberation it becomes an hour devoted to anti-humanism.
It encourages the sanctimonious gesture of turning off trivial appliances for a
trivial amount of time, in deference to some ill-defined abstraction called
“the Earth,” all the while hypocritically retaining the real benefits of
continuous, reliable electricity.

People who see virtue in doing without electricity should shut off their
fridge, stove, microwave, computer, water heater, lights, TV and all other
appliances for a month, not an hour. And pop down to the cardiac unit at the
hospital and shut the power off there too.

I don’t want to go back to nature. Travel to a zone hit by earthquakes,
floods and hurricanes to see what it’s like to go back to nature. For humans, living
in “nature” meant a short life span marked by violence, disease and ignorance.
People who work for the end of poverty and relief from disease are fighting
against nature. I hope they leave their lights on.

Here in Ontario, through the use of pollution control technology and
advanced engineering, our air quality has dramatically improved since the
1960s, despite the expansion of industry and the power supply.

If, after all this, we are going to take the view that the remaining air
emissions outweigh all the benefits of electricity, and that we ought to be
shamed into sitting in darkness for an hour, like naughty children who have
been caught doing something bad, then we are setting up unspoiled nature as an
absolute, transcendent ideal that obliterates all other ethical and humane
obligations. No thanks.

I like visiting nature but I don’t want to live there, and I refuse to
accept the idea that civilization with all its tradeoffs is something to be
ashamed of."

Thanks to Joe Lais for the pointer to WUWT, which features the photo below with the caption:

The winner for Earth Hour every year since 2003 - North Korea. Odds favor them to be the winner again this year.

Friday, March 30, 2012

Chinese Workers Are Upset With Less Overtime: "We're Here to Work and Not to Play"

Reuters - "When
Chinese worker Wu Jun heard that her employer, the giant electronics
assembly company Foxconn, had given employees landmark concessions her
reaction was worry, not elation.

Foxconn's concessions, including cutting overtime for its
1.2 million mainland Chinese workers while promising
compensation that protects them against losing income, were
backed by Apple, which has faced criticism and media scrutiny
for worker safety lapses and for using relatively low-paid
employees to make high-cost phones, computers and other gadgets.

But at the Foxconn factory gates, many workers seemed
unconvinced that their pay wouldn't be cut along with their
hours. For some Chinese factory workers - who make much of their
income from long hours of overtime - the idea of less work for
the same pay could take getting used to.

"We are worried we will have less money to spend. Of course,
if we work less overtime, it would mean less money," said Wu, a
23-year-old employee from Hunan province in south China.

"We are here to work and not to play, so our income is very
important," said Chen Yamei, 25, a Foxconn worker from Hunan who
said she had worked at the factory for four years.

"We have just been told that we can only work a maximum of
36 hours a month of overtime. I tell you, a lot of us are
unhappy with this. We think that 60 hours of overtime a month
would be reasonable and that 36 hours would be too little," she
added. Chen said she now earned a bit over 4,000 yuan a month
($634).

Natural Gas Production in Jan. Sets New Record

The Shale Gale Continues.....

The Energy Information Administration reported today that natural gas production in the United States reached a new monthly record high of 2.577 trillion cubic feet in January. That's an increase of 11.6% compared to a year ago, and 16% above January 2009. The ongoing increases in production to record high levels, along with sluggish demand due to the mild winter, explain why prices for natural gas in the futures market are at a 10-year low, and a 17-year low, when adjusted for inflation (lowest since 1995).

Update: In response to the comment from Unknown, the chart below shows both Gross Withdrawals and Marketed Production, on a 12-month moving average basis. Over the one-year period through January 2012, marketed production has actually increased by 8%, which is more than the 7.1% increase in gross withdrawals. On an unadjusted basis, the 12-month increase through January was 9% for marketed production and 11.6% for gross withdrawals, but for December, the increases were 8.5% for marketed and 7% for gross withdrawals.

Markets in Everything: Online Necktie Rental

Tie Society is an online service like Netflix that allows you to rent designer neckties (and bow ties and cufflinks), for those guys who never want to be seen wearing the same tie twice or just want access an endless rotating, fresh collection of ties. Membership plans start at $10.95 for one item and go up $49.95 per month for 10 items. Shipping is included and you can have unlimited exchanges. If you really like a tie, you can buy it at a discount instead of sending it back.

Cartoon of the Day

Restaurant Index Expands in Feb. for 4th Month

"Bolstered by positive same-store sales and traffic results and an optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) remained above 100 for the fourth consecutive month in February. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.9 in February, up 0.6 percent from January’s level of 101.3 (see chart). In addition, the RPI stood solidly above the 100 threshold in February, which signifies expansion in the index of key industry indicators.

The Expectations Index, which measures operators’ six month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 102.0 in February – essentially unchanged from January (see chart above). February marked the sixth consecutive month that the Expectations Index stood above 100, which represents an optimistic outlook among restaurant operators for business conditions in the months ahead."

Update: Sales for "Food Services and Drinking Places" were up by 8.2% in February from a year earlier, following a 9.3% increase in January. Sales at "Full Service Restaurants" were up by 11% in January. The restaurant industry has made a full recovery from the recession and is now operating back at pre-recession levels.

Markets in Everything: Maine Eels for $2k/Pound

NY Times -- "The next two months will bring sleepless nights and high anxiety — and quite possibly an extraordinary windfall — for a small universe of people in Maine. They are the lucky few with licenses to catch elvers — young, tiny eels that look like cellophane noodles and by some accounts are fetching up to $2,200 per pound this spring.

Maine is one of only two states, along with South Carolina, where elver fishing is still allowed. And with Asian demand especially high — last year’s tsunami curbed supply in Japan, and Europe has cracked down on exporting eels — a gold rush of sorts is on along the rivers and streams of coastal Maine. Since the season began last week, stories have abounded of people making a small fortune in an often hard-luck state."

Thursday, March 29, 2012

Michigan Economy Shifts Into High Gear in January as Economic Activity Index Reaches 6-Year High

Comerica Bank's Michigan Economic Activity Index rose seven points in January, up to a level of 98. The January index level is 38 points, or 63%, above the index cyclical low of 60, and marks the highest index reading since January 2006 (see chart above).

"A rebounding U.S. auto industry drove our Michigan Economic Activity Index sharply higher in January, after stalling in late 2011. Every component of the Michigan index increased in January, a sign that the recovery in Michigan is reaching beyond the revitalized auto industry and into the non-manufacturing sectors of the state economy," said Robert Dye, Chief Economist at Comerica Bank. "Threats to the Michigan economy are still visible in the form of cooler global macroeconomic conditions, higher energy prices and expected cuts in federal defense spending. However, these headwinds are not expected to reverse the state's recent hard-fought gains."

Ion Proton Provides a Cheap Window into our DNA: The First Glimpses into the Once Unknowable

"If you want to take advantage of the latest plummeting price of genetic sequencing, it will be because of the Ion Proton. How did scientists find a way to get such a cheap window into our DNA?

The machine that can do that--in just two hours--is the Ion Proton, a genetic sequencer introduced by Life Technologies in January. It’s 1,000 times more powerful than its year-old predecessor, the Ion Torrent, and, at $1,000 per genome, a fraction of the price. A combination of Moore’s Law, ingenuity, and demand stand to make the Ion Proton the go-to gene decoder in a market that Life Technologies CEO Greg Lucier estimates will hit $2 billion by 2014. In turn, Life Technologies stands to make possible a future in which medicine is tailored to each individual’s DNA.

The inventor of the Ion Torrent, Jonathan Rothberg comments, “This is just the start--it’s not a magic wand, but I do believe in the next few years we’ll see an understanding of many complex disorders.” After all, giving doctors and researchers faster and easier access to DNA gives them a better look into life itself.

“Everything in the world starts with DNA,” Lucier says, “so our ability to understand how things work by understanding their computer code will allow us to do amazing things.” So while there’s no easy magic yet, there are the first glimpses into the once unknowable."

Nevada's Modern Day Gold Rush Creates Jobs

ELKO -- "In almost every way Nevada is still reeling from the recession. It has the highest unemployment rate in the country at almost 13 percent, and one of the highest foreclosure rates. But in the northeast corner of the state, almost 500 miles from the Vegas strip, life is suddenly very good.

In Nevada's gold country the global boom that’s pushed gold prices to an all-time high – currently hovering around $1,700 per ounce -- brought an influx of jobs to mining towns like Elko, Nev., population 18,000."

MP: Mining employment in Nevada has increased by 27% over the last two years and reached an all-time record high in January. The employment level in Elko also set a record in January and is now about 12% above the pre-recession level.

Min Wage = No Subway $5 Footlongs In SF

NBC -- "The catchy Subway sandwich shop jingle involving a variety of foot-long sandwiches available for $5 doesn't apply in San Francisco. Apparently, the city's new minimum wage, raised to $10.24 as of January 1, make $5 footlongs an impossible business model."

Jobless Claims Close to a Four-Year Low

Initial jobless claims (seasonally adjusted) fell to 359,000 for the week ending March 24, which was the lowest number since April 2008, almost four years ago, according to today's Labor Department report. The four-week moving average of weekly claims, which smooths out some of the weekly volatility, fell to 365,000 - the lowest level since May 2008. At the current rate of decline, weekly jobless claims should be back to pre-recession levels below 350,000 by this summer, possibly by June.

Wednesday, March 28, 2012

Crushing Economic Liberty to Protect Status Quo

About a year ago, I reported on CD about the Institute for Justice's legal challenge of the anti-competitive protectionism in Nashville that was being practiced by the city's high-end limousine cartel, with help from their government enablers, against competition from lower-cost entrepreneurs.

George Will writes in today's Washington Post about the Nashville limo cartel, which he describes as the "collusion between entrenched businesses and compliant government."

This is good time to invoke the spirit of French economist Bastiat, who wrote these words in a letter four days before his death in 1850:

"Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race."

Given a choice between siding with the disorganized, dispersed consumers/human race and the concentrated, well-organized special-interest of the producers, the politicians will crush economic liberty to protect the incumbent producers almost every time, and the city officials in Nashville are no exception. Sadly, the human race suffers.

Interestingly, in the Nashville case the government supported the price-fixing behavior of the limo cartel, which pressured city regulators to set prices at a $45 minimum charge for any ride. The intention of the price-fixing was obviously to squash competition from the cut-rate newcomers, who were charging only $25 to take customers to the Nashville airport. But in another recent case, the government just sentenced auto executive Norihiro Imai to one-year in jail, and imposed more than $550 million in fines on several auto suppliers, for fixing prices on automotive heater control panels.

So in some cases the government enables incumbent producers like limousine companies to fix prices and in other cases it fines auto suppliers and sends their executives to jail for price-fixing? Welcome to the wacky world of government anti-trust.

Vegas Existing Home Sales Surge to 7-Yr. High

1. The number of homes sold in the Las Vegas area (4,240) rose to the highest level for a February in six years, with new-home transactions at a four-year high and resale activity the strongest since 2005.

2. Total February sales were 11.5% higher than the average number of homes sold in that month since 1994, while resale activity was 52.7% above average for a February.

3. In February, 3,744 existing homes resold (excludes newly built homes), up 5.1% year-over-year. It was the 14th consecutive month in which resales have posted an annual gain, and marked the highest number of February resales since 3,875 sold in February 2005.

4. Cash buyers purchased 52.9% of the Las Vegas-area homes that sold in February. That was down from a cash-buyer share of 53.7% of total sales in January and down from a record 56.7% a year earlier.

5. Absentee buyers – mainly investors and vacation home buyers – purchased a near-record 48.2% of all Las Vegas-area homes sold in February. That compares with 49.1% in January and 49.7% a year earlier. The record was 49.9% in March last year.

6. The median price paid for all new and resale houses and condos sold in the Las Vegas metro area in February was $112,000, up 1.8% from $110,000 in January and down 5.9% from $119,000 in February 2011. Last month’s figure was 64.1% below the November 2006 peak of $312,000.

MP: The Las Vegas real estate market is now being driven by cash buyers and absentee buyers (often the same) who are attracted to the bargain prices today that are about one-third (median price of $112,000) of the median home prices at the peak in 2006 of $312,000. But the fact that existing home sales are at a 7-year high suggests that the Las Vegas market is recovering and adjusting to a new era where "cash is king."

North Dakota, Mining Industry Lead Growth for Personal Income Gains in 2011

1. State personal income rose 5.1% in 2011 following a 3.7% increase in 2010, a -1.7% decrease in 2009 and a 3.9% gain in 2008.

2. North Dakota led the country with the highest gain in state income for 2011 (8.1%), the largest increase in per-capita state income (6.7%), and the highest gain in personal income during the last quarter of 2011 (1.5%).

3. Mining had the highest earnings growth rate by industry in 2011 at 25.4%, led by a 70% increase in mining income for North Dakota, a 41% increase in Oklahoma, and a 38% increase in Pennsylvania.

MP: More evidence that increased drilling for oil and natural gas in states like North Dakota, Oklahoma and Pennsylvania is not only creating thousands of shovel-ready jobs, but thousands of high-paying jobs that are boosting personal income for workers in the mining industry in those states.

1. China is now the third-largest U.S. export market, and U.S. exports to China continue to expand rapidly. As a buyer of U.S. goods, China ranks behind only Canada and Mexico—two immediate neighbors with whom the United States has a regional free-trade agreement (see top chart above).

2. Between 2000 and 2011, total U.S. exports to China rose 542 percent, from $16.2 billion to $103.9 billion. Total U.S. exports to the rest of the world increased only 80 percent during this period (see bottom chart above).

4. The nearly $88 billion increase in exports to China during 2000–11 exceeded the increase to every other market for U.S. goods and farm products, with the exception of Canada. U.S. exports to Canada rose $102 billion over the same period, while U.S. exports to Mexico rose $86 billion. Brazil was a distant fourth with just a $28 billion increase in purchases of US products.

5. Thirty states now count China as one of their top three export markets and 25 states exported more than $1 billion to China in 2010, with export categories reflecting a broad range of products. The list of top 15 state exporters to China in 2011 includes states not usually thought of as benefiting from trade with China: Michigan, New York, North Carolina, Ohio, Pennsylvania, and South Carolina.

Reshoring Updates

1. Chicago Tribune -- "In a corner of a manufacturing plant in the Chicago suburb of St. Charles, a dozen workers steadily assembled electric motors that until December were produced in China. The Bison Gear & Engineering Corp. workers inserted copper wires, tested the assembly and then readied them for the next step, the addition of a gearbox. The end products, gear motors, are used in everything from ice machines to solar panels. At one time it made sense for Bison to import motors from China, but no longer."

2. "Saunders Manufacturing Co. is reshoring plastics manufacturing jobs as part of a pledge to bring jobs back to the United States. The Readfield, Maine-based manufacturer of aluminum clipboards, forms holders and plastic storage clipboards will relocate jobs from China to LC Industries in Jackson, Miss."

3. "Whirlpool Corp.’s KitchenAid brand is bringing production of its hand mixers back to the U.S. from China. That shift will mean new business for suppliers of the mixers injection molded parts, said Larry Simpson, global business development manager for KitchenAid Small Appliances. The company is in the process of moving production now to Greenville, Ohio, which is already home to KitchenAid’s larger stand mixers. Motors will still be made by key suppliers for St. Joseph, Mich.-based KitchenAid in Asia, but the bulk of other components will move to local sources."

Shale Gale: The Energy Equivalent of the Berlin Wall Coming Down and Best Reason to Be Bullish

1. Natural gas futures prices fell to another 10-year low today of $2.208 per million BTUs on the New York Mercantile Exchange, see chart above. In nominal dollars, that's the lowest price for natural gas since February 2002, and adjusting for inflation it's the lowest price since July 1995, almost 17 years ago.

2. Michigan-based Consumers Energy announced today that it will lower natural gas prices starting next month for 1.7 million customers by 13% -- welcome news in tough economic times and rising gasoline prices. Customers will save about $130 million in energy costs over the next year as natural gas prices drop to levels not seen in nine years. This long-term reduction in natural gas prices comes on top of lower fuel costs from the recent mild winter, saving a typical residential gas customer about $94 compared to the previous year.

"It's the most dramatic change that is happening beneath the surface of the U.S. economy today. As the rest of the world struggles with oil prices that are very expensive both nominally and in real terms, the U.S., thanks to new fracking technology, is enjoying natural gas prices that are plunging. Even as crude oil prices have surged over the past 13 years from $12/bbl to over $100, the price of natural gas in the U.S. is roughly unchanged on net. That means that natural gas has dropped by an astounding 85% relative to crude oil (see recent CD post here). We've never seen anything like this.

The U.S. now enjoys an incredible energy price advantage that not only is transforming industries (for example, it shouldn't be too long before we start seeing cars that run on LNG), but that should be an important source of growth for the entire economy. This could be the best reason to be bullish."

MP: As Robin West, chairman and CEO of PFC Energy, reminds us "This shale gale is the energy equivalent of the Berlin Wall coming down. This is a big deal."

ASA Staffing Index Highest Since 2008 for Week 12

The American Staffing Association reported today that its weekly Staffing Index of temporary and contract employment increased to a year-to-date high of 89 for the week ending March 18, which was almost 5% above the year-ago level and about 1% above the previous week. For Week 12, it was the highest reading since 2008 (see chart above), and just slightly below the comparable week in 2007. As a leading indicator of future, broader-based labor demand, the upward trend in the Staffing Index this year would suggest that conditions in the labor market will continue to improve going forward.

"Are there any limits," asked Justice Anthony Kennedy, one of three conservative justices whose votes are seen as crucial to the fate of the unprecedented insurance mandate.

Chief Justice John G. Roberts Jr. suggested that the government might require Americans to buy cellphones to be ready for emergencies. And Justice Antonin Scalia asked if the government might require Americans to buy broccoli or automobiles. "If the government can do this, what else can it do?”

Blue Cross Uses Cash Rewards to Lower Costs

Kaiser Health News -- "In recent years, insurers have tried to cajole consumers into using less-expensive health-care providers by promising lower co-payments and other cost-sharing breaks for members who select those doctors and hospitals. Lately, they're trying an even more direct approach: cash rewards.

Some Anthem Blue Cross and Blue Shield members in New Hampshire, Connecticut and Indiana can receive $50 to $200 if they get a diagnostic test or elective procedure at a less expensive facility than the one their doctor recommended. The offer covers nearly 40 services, from standard radiology tests such as mammograms and MRIs to such surgical procedures as hip and knee replacements, hernia repair, bariatric surgery and tonsillectomies.

It seems to be working. The city of Manchester, N.H., the first employer to pilot Anthem's Compass SmartShopper program in January 2010, has saved more than $250,000 in health-care costs in two years, even after factoring in the cash rewards paid to the 476 members who have participated The differences in costs can be eye-popping. According to Anthem data, in Manchester a hernia repair ranges in price from $4,026 on the low end to $7,498 on the high end. A colonoscopy could cost $1,450 to $2,973.

The program is entirely voluntary. If the member wants to stick with his doctor's initial plan and forgo the cash bonus, no problem."

MP: Sure seems like a win-win situation, and helps overcome patients' general lack of concern about health care costs when only 10% of all medical costs are paid "out-of-pocket" by consumers and the other 90% are paid using "somebody else's money" (insurance, government, employers, etc.).

Update: See full article at the link above for the details of how the patients can find lower cost providers for various procedures to qualify for the cash reward.

Wikipaintings: The Entire History of Art Online

"The project aims to create high-quality, most complete and well-structured online repository of fine art. We hope to make classical art a little more accessible and comprehensible, and also want to provide a new form of interaction between contemporary artists and their audience. In the future we plan to cover the entire history of art — from cave artworks to the new talents of today.

The project is non-profit. The site will not contain advertising in any form and its creators do not intend to make profit from the activities or sale of the project. Initial work on the establishment and maintenance of the site is paid from funds of the initiative group, but later we hope to cover the costs through donations from users."

Cartoon of the Day

Sh*T Bureaucrats Say

NPR: Kochs vs. CATO

Libertarians say it's like watching dear friends in an ugly divorce, as the billionaire Koch brothers try to take control of the highly regarded Cato Institute. The head of Cato says the Kochs are out to politicize the think tank.

Higher Taxes = Tax Avoidance = Lower Revenues

"Britain's recent experiment with hiking taxes on the rich may have some lessons for the U.S.

To dig itself out of recession, Britain hiked its income-tax rate to 50% for those making more than £150,000 ($240,000). Proponents said the tax was needed to bring fairness to an economy, in which the rich were getting richer and not contributing enough to the cause. Critics said the tax would chase out the job creators.

As it turned out, the real impact was in tax avoidance. According to the Chancellor of the Exchequer’s budget announced today, the income-tax hike caused “massive distortions” that cost the government. A study found that £16 billion of income was deliberately shifted into the previous tax year. As a result, the tax raised only £1 billion – a third of the £3 billion amount forecast."

MP: There are several basic economic lessons here including:

a) If you tax something, you get less of it, b) taxes and regulations are always distortionary because people can change their behavior to avoid them, i.e. raising tax rates raises tax avoidance, c) incentives matter (as do disincentives), and d) the Laffer Curve accurately predicts the inverse relationship between tax rates and tax revenues at high marginal tax rates.

FRED: World's Most Amazing Economic Website

Business Insider goes to the St. Louis Federal Reserve to find out the history of FRED (Federal Reserve Economic Data), " and interview the four people currently responsible for the "most amazing economics website in the world" (except for Carpe Diem of course!).

Here are some FRED stats:

1.9 million visits in 2011 from 200 countries (42% increase from 2010)

Average of 6,000 visits per day

14.5 million page views during 2011

13,000 visits from Twitter during 2011

Approximately 600,000 custom FRED Graphs were created during 2011 (more than one per minute)

GeoFRED received 15,000 visits during 2011

ALFRED received 48,000 visits during 2011

During Q4 2011, 14.7 million data calls sent through API

15,000 new series added during 2011

FRED's mission: To continue to add more data series and "FRED-ify" the world! As a daily FRED user, I see a very bright FRED-ifed world of economic and financial data! After all, you can never have too much data (or too many tools, guitars, cowboy boots, CDs, books, etc.).

Cheap Nat Gas Brings Manufacturing Back to U.S.

"Low natural-gas prices represent a competitive advantage across the U.S. manufacturing base. The price of natural gas is $11.35 per million BTUs in northwest Europe and $15.9 in Japan, according to researcher Platts, compared with U.S. levels of $2.27 (see chart above).

"Companies that had left the U.S. in sectors like chemicals and fertilizers are talking about coming back to take advantage of the low cost of gas," said Don Norman, an economist for the Manufacturers Alliance for Productivity and Innovation.

In January, Methanex Corp. of Vancouver said it would relocate a plant to manufacture methanol, used in making plastics and other materials, to Louisiana from Chile. At the time, Bruce Aitken, the company's chief executive, cited "the outlook for low North American natural-gas prices" as key reason for the move. And low natural-gas costs were a factor in the decision by Brazil's Santana Textiles LLC to build a $180 million denim plant now under construction in Edinburg, Texas, rather than Mexico."

Note: The data in the chart above for international natural gas futures prices are from the chart in the WSJ article, original source is Platts. U.S. gas prices are 80% lower than Europe and 85% cheaper than Japan.

VIX Index Falls to Lowest Level Since Mid-2007

"One of the most important but under-reported financial indicators is the CBOE’s Volatility Index (^VIX), which measures the market’s expectation of future volatility in stock prices (over the next 30 days). (The CBOE has written a nice technical white paper describing how it is calculated, here.) When it drops below 30 percent, it will be a strong indication that the market correction is complete and we’re back to business as usual."

Often referred to as the "fear index," the VIX represents one measure of the stock market's expectation of volatility over the next 30-day period (Wikipedia). The VIX is a widely used measure of market risk and it is often referred to as the "investor fear gauge" (Investopedia).

The chart above shows that the VIX Index closed today at 14.26, the lowest value since early June 2007, almost five years ago, and a full six months before the recession started in December 2007. Investor fear has gradually subsided, and market volatility is now back to normal pre-recession levels.

BPP@MIT Annual Inflation Lowest In 2 Years: 2.2%

The Billion Prices Project @ MIT just released daily online price index data through March 6, and annual inflation rates for the last two years are displayed in the chart above. According to this real-time information of major inflation trends in the U.S., inflationary pressures have been subsiding for the last six months, and the current annualized inflation rate of about 2.2% through early March is the lowest rate in at least two years. That's almost a full percent below the 3% annual rate of inflation from the CPI (NSA), providing support to the notion that the BLS measure of consumer prices overstates inflation by a full percentage point.

Adjusted for Inflation and Increased Vehicle Efficiency, Cost Per Mile is 28% Less Than in 1980

Energy Fact of the Day:

Adjusted for inflation, gasoline today is about the same price as in 1980 ($3.58 per gallon in February, see top chart). However, adjusted for both inflation and increased fuel efficiency over time, the costs per mile driven were about 23 cents in 1980 compared to 16-17 cents per mile in February 2012, according to the EIA (see bottom above), or about 28% less today than in 1980.

Manufacturing Profits Set New Record in 2011

The Census Bureau reported today on fourth quarter financial results for the U.S. manufacturing sector, with the following highlights:

1. After-tax profits for U.S. manufacturing corporations were just short of $600 billion in 2011, setting a new annual record. The $598.3 billion of profits for American manufacturers last year represented an increase of more than 25% from the $477.7 billion in profits the previous year, and follow a 67% gain in 2010. In contrast, the after-tax profits for all U.S. corporations are on track to increase by less than 5% for 2011 based on data currently available through the third quarter of last year, following a 19% increase in 2010.

2. The $600 billion in after-tax manufacturing profits is also more than 27% above the pre-recession high of $470.2 billion 2006, and more than double the annual profits in 2008 and 2009 of less than $300 in each of those years. In contrast, all corporate profits this year will be less than 10 percent higher than in 2006.

3. On a quarterly basis, durable manufacturing had its most profitable quarter ever, with a record-setting $76.5 billion in profits for the October-December period.

The record profitability of U.S. manufacturing corporations last year is just one of several economic indicators that put America's industrial sector directly at the forefront of the economic recovery. For example:

1. While real GDP increased only 1.7% last year, the manufacturing component of U.S. industrial production grew at almost three times that rate (4.7%) in 2011, and increased by a even-higher 5.2% over the most recent 12-month period from February 2011 to February 2012.

2. Over the 12-month period from February 2011 to February 2012, manufacturing employment grew by 1.90%, compared to the 1.5% growth rate for total payroll employment over that same period.

3. For the last nine months from June 2011 to February 2012, the jobless rate for manufacturing has been below the national average, and is currently at 7.7% and a full half-point below the U.S. average of 8.2% (not seasonally adjusted).

By all relevant measures of economic performance: profits, output gains, employment growth, and unemployment rates, American manufacturing continues to lead the U.S. economy in the economic recovery.

Oil Patch Airports Are Booming in ND and Texas

Traffic is booming at some North Dakota and Texas airports near their booming oil and gas regions (Bakken in North Dakota and Eagle Ford Shale in Texas):

1. "Minot has one of the fastest growing airports in the U.S. and needs a terminal three times the size of the existing one, says Andy Solsvig, director of the Minot International Airport. Minot's air travel numbers have been on the rise since 2009, much of it attributed to the oil boom. Air travel out of Minot increased 63 percent and 85 percent, respectively, in January and February."

2. "Stinson Municipal Airport, a 96-year-old airport in South San Antonio, might be in the right place at the right time. Stinson officials said business is growing again in large part because of improving economic activity in the South Side and spinoff activity from energy production in the nearby Eagle Ford Shale formation."

Leading Indexes Improve: China, Euro Area, Mexico

The Conference Board's leading economics indexes increased in February for China (by 0.8% following increases of 1.5% in January and 0.8% in December) and the Euro Area (by 0.8% following increases of 1.1% in January and 0.5% in December), and in January for Mexico by 1.5%.

Markets in Everything: Professional Line-Standing

The first three people in line last Friday for the Supreme Court hearing today. Professional line-standers?

Washington Express -- "Do you need to attend a congressional or judicial hearing but don't have the time to stand in line? Washington Express, a leader in DC area courier services, provides professional, competitively priced line-standing and seat holding services for congressional and judicial hearings.

Our rate for line standing is $40.00 per hour and Supreme Court line standing is $50 per hour. Washington Express has provided line-standing and seat-holding services for over 20 years, and in that time, we have developed significant expertise in all of the sometimes complex details of seat holding and linestanding."

"The line-sitters, including working poor and the homeless, make up more than two-thirds of the line. Some are professionals, but all have been asked by their employers not to talk to reporters, and never to admit to being paid to sit. Rumor has it they’re being paid between $5 and $13 per hour to endure the elements and leg cramps."

"When I went to the Supreme Court Friday afternoon, there were already eight people in line. And at least some of them do not plan to see the arguments themselves.

Three told me that they were being paid to wait there, although declined to be identified. One said he was holding a spot for his boss, but would not speak to whether he was being compensated. And two wouldn’t say anything at all. Monica Hammond, who currently holds the 11th spot in line and is blogging about it, writes that “The line standers are working in shifts - usually about 6-8 hours.” On Saturday, she saw a scuffle between two line standing companies over who had which spots."

Sunday, March 25, 2012

"There's a reason the people in Cuba don't have access to the Internet. It is because the government couldn't survive it.

It isn't communication with the outside world that the regime fears the most, but Cuban-to-Cuban chatter. I think Raúl Castro clearly understands that his regime cannot survive a Cuban reality where individual Cubans can communicate with each other in an unfettered manner. Unfiltered access to the Internet and social media is Cuba's best hope of avoiding a stagnated dictatorship for the next 50 years....."

Commercial Loan Growth Improves This Year

The annual growth in commercial and industrial loans at large U.S. commercial banks has been trending upward since early 2010, and has been above 16% for the last seven weeks starting in late January, see chart above. The last time C&I loan growth was above 16% for that many consecutive weeks was the summer of 2008.

Traffic Volume Rises in January by 1.6%, Largest Gain in 15 Months, But Gas Consumption is Falling?

Steve Hayward and Charles Hugh Smith have recently pointed to falling gasoline consumption, based on these EIA data that show a steep drop in retail gasoline sales in November and December. Some are saying that this drop in gas consumption signals a decline in economic activity with the possibility that we're headed towards a sharp contraction and double-dip recession.

But the recent Federal Highway Administration report on monthly traffic volume is telling a much different story of fairly large increases in monthly vehicle miles for the months of December (1.3%) and January (1.6%) compared to their year-ago levels (see chart above). The 1.6% increase in January to 224.8 billion vehicle-miles from 221.3 billion a year ago is the largest monthly increase since October 2010. Further, the moving 12-month total of vehicle travel increased in both December and January, following 9 straight months of decline.

I'm not sure how to reconcile these two completely different stories of falling gas consumption but rising travel volume - how can that happen? Perhaps the January gasoline consumption data (not yet available) will show a rise?

Friday, March 23, 2012

Markets In Everything: Selling Comedy Online

"A handful of top-tier performers have begun producing stand-up specials on their own, posting them online and selling them directly through their personal Web sites, eliminating the editorial control of broadcasters and the perceived taint of corporate endorsements.

The turning point arrived in December, when the comedian Louis C. K. released a stand-up special, “Live at the Beacon Theater,” that was sold only as a $5 download, without electronic copy protection, from his Web site. Louis C. K., who stars in the FX series “Louie” and has performed in comedy specials on HBO, Showtime and Epix, said that he was seeking minimal outside interference and maximum ease for his audience.

The experiment worked: produced at a cost of $250,000, “Live at the Beacon Theater” sold more than 220,000 downloads and grossed over $1.1 million — enough for Louis C. K. to give $250,000 in bonuses to his crew and donate a further $280,000 to charities. Other comedians following Louis C. K.’s online trail say that they have been contemplating Internet-only projects for several months."

How Advances in Drilling Technology Are Creating a Revolution and Turnaround for U.S. Oil Output

"Just a decade ago, complete wells were fracked at the same time with millions of gallons of water, sand and chemical gels. Now the wells are fracked in stages, with various kinds of plugs and balls used to isolate the bursting of rock one section at a time, allowing for longer-reaching, more productive horizontal wells. A well that once took two days to drill can now be drilled in seven hours.

For instance, when the Apache Corporation began drilling in the 100,000-acre Deadwood field in the West Texas Permian basin in 2010, there had only been a trickle of production there. The deep shale, limestone and other hard rocks had potential, but for years they had not been considered economically viable. The rocks were so hard, they would have likely sheared off the usual diamond cutters on the blade of any drill bit attempting to cut through.

But new adhesives and harder alloys have made diamond cutters and drill bits tougher in recent years. Meanwhile, Apache experimented with powerful underground motors to rotate drilling bits at a faster rate. Now, a well that might have taken 30 days to drill can be drilled in just 10, for a savings of $500,000 a well.

“By saving that money, you can spend more on fracking, which translates into more sand and more stages and better productivity,” said John J. Christmann, the Apache vice president in charge of Permian basin operations.

Apache has already drilled 213 wells in the field, producing 9,000 barrels a day. With 13 rigs running, it hopes to eventually drill more than 1,000 wells, and produce 20,000 barrels a day there. “We’re having a revolution,” said Steve Farris, Apache’s chief executive. “And we’re just scratching the surface.”

Thursday, March 22, 2012

January Jobless Rate Falls to 0.8% in ND Oil Patch

According to data just released by the state of North Dakota, the unemployment rates both for the city of Williston and the surrounding Williams County fell to 0.8% in January, the lowest jobless rates ever recorded in North Dakota, and possibly for the entire United States.

Wind Energy Fact Sheet

Manufacturing’s Declining Share of GDP is Inevitable, Global, and Something to Celebrate

In a new study from the Innovation Technology and Innovation Foundation (ITIF), (“Worse Than the Great Depression: What Experts Are Missing About American Manufacturing Decline”) the authors make this statement in the introduction:

“Even if economic policy experts acknowledge that manufacturing’s share of output has declined, many comfort themselves with a narrative that such decline comes as the inevitable result of market forces. “Manufacturing is in decline everywhere, even in China,” they argue. They would be wise to consult actual data, for they would find that while manufacturing has declined as a share of GDP in some nations (notably Canada, Italy, Spain, the United Kingdom, and the United States), it is stable or even growing in many others (including Austria, China, Finland, Germany, Japan, Korea, the Netherlands, and Switzerland).”

Actually, that's not really accurate. The chart above shows the manufacturing shares of GDP for the U.S., the entire world economy and four of the countries cited in the study (Japan, Germany, Finland and the Netherlands) as having a "stable or growing" shares of GDP using United Nations data here for the years 1970 to 2010. For all five countries and for the world economy, the manufacturing shares of GDP fell to historic all-time lows in 2009, before increasing slightly in all cases in 2010. Like the U.S., manufacturing's share of GDP has fallen in Germany, Japan, Finland and the Netherlands.

It’s also interesting to note that the decline in manufacturing’s share of U.S. GDP over the last forty years (from 24% to 13%) is nearly identical to the decline in world manufacturing as a share of world GDP, which fell from 27% in 1970 to 16% in 2010. Therefore, we can conclude that the declining share of manufacturing’s contribution to GDP is not unique to America, but reflects a global trend as the world moves from a traditional manufacturing-intensive Machine Age economy to more a services-intensive Information Age economy.

The authors of the ITIF study come to a much different conclusion:

“The loss of U.S. manufacturing is not due to some inexorable shift to a post-industrial economy; it is due to a failure of U.S. policies (for example, underinvestment in manufacturing technology support policies and a corporate tax rate that is increasingly uncompetitive) and the expansion of other nations’ mercantilist policies.”

An alternative explanation is that we really are experiencing an inevitable shift to a post-industrial, Information Age economy where manufacturing’s importance to output and jobs is declining, similar to the trend in agriculture over the last century.

Manufacturing’s declining share of output isn’t a sign of economic weakness - it’s just the opposite. It’s a sign that advances in manufacturing productivity and efficiency translate into lower prices for consumers when they purchase goods like cars, food, clothing, appliances, furniture, and electronic goods. In the U.S., the price of goods relative to services fell by 52 percent between 1970 and 2010, so it’s not surprising that manufacturing’s importance in the economy has fallen significantly.

As spending on manufactured goods as a share of household income declines, it raises our standard of living, and for that “decline in manufacturing” we should celebrate, not complain.